Iron ore prices (as measured by 62% fines) have fallen over 50% from their peak at almost $200 per tonne, after doubling twice from early 2009.
This dynamic is due to collapsing demand, as inventories in China climb to new heights amid increasing volume output from Chinese, Australia, African and Brazilian suppliers.
…Due to the lack of price discovery in iron ore, calculating a possible price target is very difficult. Technicals suggest a $75 bottom but $60 per ton is not out of the question. We agree the most likely outcome is then a 20-40% bounce in prices back to $100/110 per tonne.
Some in the market are already advising catching this falling knife for any subsequent bounce. We do not see it that way. Rather, the risk/reward equation is better following the trend and managing the trades dynamically with much tighter trailing stop losses once they correspond with a break even position. When the price turns we’ll reverse the trade and make money going up too. It’s much more profitable over time to forget trying to be right or wrong and manage your capital instead.
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